Today we're going to achieve a basic understanding of economics in one UR post. No previous knowledge of the subject is assumed.

UR can deliver this remarkable savings in both time and tuition because, and only because, our "economics" is an entirely different product from the standard academic sausage. We've considered changing the word - but this feels hokey. It also conceals our feeling that (a) for most customers, UR's "economics" is a more than satisfying replacement for 20th-century industrial numerology; and (b) our version is far closer to the original artisanal craft.

Here at UR, "economics" is not the study of how real economies work. It is the study of how economies should work - in other words, of how sound economies work. Sound economies, as we'll see, are also stable economies. All the King's mathematicians have had some trouble in reproducing this property.

Since there are no economies on the planet which are even remotely sound, nor is there any prospect of any such thing appearing, this discipline cannot conceivably be empirical, quantitative, or worst of all predictive. Its only tools are logic and sanity. Sound "economics" can only be natural philosophy, not "science." (A brand in any case increasingly overexposed - not least by its association with the King's mathematicians.)

Moreover, since healthy economies are healthy by definition, there is no practical reason to study them. No remedy is required for their ills, since they are not ill. Thus UR's "economics" is not only nonscientific, but nontherapeutic.

It does not even offer a path for transforming a pathological economy into a sound one. It prefers the old Irish directions: "don't start from here." If there is such a path, it is certainly neither gradual nor gentle. Since real governments are about as capable of following it as your grandmother of climbing K2, its existence is just as fantastic as our sound economy, and it is not even worth mentioning.

So why bother? Well, two reasons. One, sound economies are simple. Or at least, they operate on simple principles, which we can explain in one post.

Two, if you want to try to start to begin to consider understanding the giant bag of cancer, graft and rust that is a 20th-century economy, you may find it helpful to contemplate the imaginary sound economy inside it. Or not, of course. But at the end of the post, we will look at a few of the pathological ways to corrupt a sound economy. You may find them faintly familiar.

On to sound economics. Readers familiar with Austrian economics will find much to skim, especially at the start, but should also watch out for nontrivial differences in the origin of money and the structure of the loan market.

First: what is an economy? An economy is a network of conscious actors, who desire goods they can produce and exchange. All real human societies are thus economic. So are alien societies, if any exist, and if the aliens can think and plan. Virtual worlds which meet this definition are also economic, and display the expected patterns.

The desires of a conscious actor are unknowable by definition. We observe only the action. Moreover, the assumption of consciousness (which is rational by definition) tells us extremely little about these desires, especially when we start to order the desirability of goods. Which is more desirable: a one-carat diamond, or a six-pack of Fiji Water? Depends whether or not you are lost in the desert.

But rationality does give us one rule: that a good always has positive (if negligible) desirability. So it is always rational to prefer more goods to fewer goods. Eg, more money to less money.

This might be objected to in the case of your brother-in-law's rusted-out 1981 conversion van. But the problem is one of semantics: his need to junk the van (which, not unlike our real economy, only needs a transmission, a couple axles and a little Bondo) is a liability or obligation, not a good. If he had a voucher for free vehicle disposal, his ownership would again be a pure good - however negligible.

We can state the principle more precisely by observing that a conscious actor always prefers more powers and fewer duties. A power cannot have negative value, because one can always decline to use it; a duty cannot have positive value, because one can always do it anyway. The classic form of economic power is ownership of some good; the classic form of duty is a debt.

And this is about it for ol' "homo economicus." What rationality does not and cannot tell us is anything else - specifically, what we really want to know, which is whether any actor X should prefer good A to good B.

Again, only X can decide whether to prefer the diamond or the water. Moreover, if all actors ordered all goods identically by desirability, we would have no economy by definition - for we would have no exchanges.

And it gets worse. We cannot even know all of X's preferences - only those which are revealed. The only way for an objective observer to observe that X prefers A to B is if the observer actually sees X give A (or A, plus choices or minus duties) to some Y, in exchange for B (or B, minus choices or plus duties).

Does all this seem obvious? You'd think it would be. However, a considerable thrust of medieval pre-economic thought was the effort to determine just prices for goods, derived from objective factors. The urge to just-price theory is by no means extinct. We appeal to it, however vaguely, whenever we mention the "value" of a good, as if "value" were an objective quality such as mass or energy.

(Indeed the entire apparatus of price-index terminology, from "inflation" to "real" and "nominal" figures, "1980 dollars," and the like, is deeply if subtly rooted in the fallacy of objective value. All this doxology is shunned by the sound. Indeed, the wise man would rather drop the N-bomb than let "nominal interest rates" slip past his lips.)

It would be an overstatement to say that all fallacies in economics proceed from the error of attributing objective value. But it might not be much of one. Objective value is the luminiferous ether of economics. There is no such thing as value (objective desirability) - there is only price (exchange rate on a clearing market). For example: consider your house.

But what are these markets? Perhaps it's time to define them.

First we need to simplify our sound economy beyond physical reality, and assume that all goods are both perfectly fungible (each unit is identical, like a barrel of oil or a bushel of wheat - not like a house) and perfectly divisible (it makes sense to speak of 2/3 of a barrel of oil, but not of 2/3 of a Ford Explorer). Goods exhibiting these qualities are sometimes described as commodities - a confusing term, not consistently applied. In any real reality, most goods are not fungible commodities. However, once we understand the commodity-only problem, it is trivial to extend its principles to the ordinary sound economy.

For every pair of goods - say, oil or wheat - there is a market. This is some trading mechanism by which actors exchange oil for wheat and wheat for oil. For example, A may give B a barrel of oil, in exchange for six bushels of wheat. For this transaction, the oil/wheat exchange rate is one barrel to six bushels.

In revealed-preference terms, what this exchange tells us is that A preferred six bushels of wheat to a barrel of oil, and B preferred a barrel of oil to six bushels of wheat. Otherwise, they would not have made the trade.

But the interesting question is: why six? Why this exchange rate, not another exchange rate? For instance, we know that A would prefer seven bushels of wheat to a barrel of oil (because he must prefer seven bushels to six bushels, and he prefers six bushels to the barrel). We do not know if B would prefer a barrel of oil to seven bushels of wheat - but we don't know he doesn't. He certainly might. If he does, the same A and B could conduct the exchange at seven barrels to the bushel, and both walk away satisfied. Instead, they trade at six. Why?

The answer is that A and B get the oil-wheat exchange rate by participating in a market. Ideally, this market contains all players who wish to make this trade. The market clears when no trades are desirable to both sides - at the market exchange rate, no A and B can be found who want to exchange oil for wheat.

Of course, preferences and players are constantly changing, so the market never actually stops trading, and the exchange rate never stops moving. However, we can imagine the first day on which the market opens, with oil moguls on the left side of the floor and wheat barons on the right, all looking to establish an exchange rate.

This is the famous model of supply and demand. I dislike this terminology, because it implies some qualitative distinction between A and B - between trading wheat for oil, and oil for wheat. Of course it is arbitrary who is A and who is B, who gets to be the numerator and who has to be the denominator. But the terms are unavoidable. For this example, therefore, we'll speak of oil-wheat supply and wheat-oil demand.

The oil-wheat supply is the number of barrels of oil that will be exchanged for wheat at a given oil-wheat exchange rate. So, for instance, the oil moguls might be willing to provide only 15 million barrels of oil for five bushels a barrel - but for seven, you will pry 40 million out of their hands. This implies that 15 million barrels are held by moguls who would take five bushels or less, and 25 million are held by moguls who will take seven or less, but no less than five.

The wheat-oil demand is the number of bushels of wheat that will be exchanged for oil at a given oil-wheat exchange rate. So, for instance, the wheat barons might be willing to let 150 million bushels go for five bushels a barrel, but only 50 million bushels at seven bushels a barrel. Again, this implies that 100 million bushels are held by those who would give more than five bushels for a barrel, but not more than seven.

Our assumption of rationality tells us that more wheat is preferred to less wheat, and more oil to less oil - whether you are a mogul or a baron. Therefore, we know that the supply curve slopes up (more wheat per oil, more oil supplied), and the demand curve slopes down (more wheat per oil, less oil demanded).

And - in case it isn't obvious - we see that the market clears where the curves intersect. There is a single oil-wheat ratio at which, after a single set of trades, all barons and moguls are satisfied and no further exchanges will be made. (Except, of course, as actors and preferences change.)

Pretty much everyone understands "supply and demand" in this sense. However, the critical point is that the market reveals preferences only at the clearing rate. It can tell us, for instance, that the market clears at six bushels a barrel - at which point the moguls are collectively willing to trade 20 million barrels of oil for 120 million bushels of wheat, and the barons collectively willing to trade 120 million bushels of wheat for 20 million barrels of oil.

The market does not reveal the shape of either curve, except at the intersection of the two. It does not reveal how many barrels the moguls would release at five bushels a barrel, or four, or seven. It does not reveal how many barrels the barons would want at five, or four, or seven. This is one of the most important insights of 19th-century economics - now you know where this blog got its name.

Great. Now, we understand markets. So clearly, for every two commodities in our economy - oil and wheat, or silver and wheat, or wheat and corn, or oil and silver - there needs to be a market. Since obviously, anyone can want to trade anything for anything else.

Actually, this is not true. If we have n commodities, we don't needO(n^2) markets. We only need O(n) markets. Whew! What a relief. You'll note that in real life, there is no oil-wheat market - even though farmers drive tractors, and roughnecks eat bread.

Imagine a square matrix in which our n commodities are rows and columns. How much real information is there in this matrix? Obviously, the oil-oil exchange rate is always 1, and the oil-wheat and wheat-oil rates are the same thing. So half our boxes, plus n, become blank.

But this is by no means enough blanking. Because we note an interesting fact - if this entire marketplace clears, it cannot be possible to construct a cycle of exchanges through which one ends up with more wheat, or oil, or silver, or anything, than one started with. This is obviously a desirable trade, and yet in a cleared market there are no desirable trades.

So the matrix is quite degenerate. There are only n-1 meaningful values. For instance, if we know the exchange rate of oil to wheat, silver to wheat, and corn to wheat, we can trivially work out the exchange rate of corn to silver. Wheat, in this example, is our numéraire. In theory, any commodity can serve this role.

You might say: well, in that case, why wheat? Why not silver? Indeed silver seems, just intuitively, like a much better denominator than wheat. Of course the commodity generally used as numéraire is that generally known as "money," and of course silver has served many societies as "money." And an exchange rate for which "money" is the denominator is known, of course, as a price.

Note how far we have drifted from our medieval urge to objective value. Before this little indoctrination session, you might have said your house was worth $400,000. Now, you say that you feel confident in finding some party B who would exchange 400,000 dollars for your house - but much less confident in finding a B who would fork over, say, 450K.

This is, of course, a case of hypothetical and unrevealed preference, until you actually sell the freakin' house. Then, if you actually get 400, you may feel justified in describing this as its price. (But then it's no longer your house.) The word price is dangerous - you can feel it wanting to drop its denominator, and become a unitless objective value. But it is impossible to avoid. One can only exercise the utmost caution in its presence.

We could easily be satisfied in this definition of "money" - the standard denominator for transactions. But the scare quotes remain. Because this definition is quite unsatisfactory.

Again, the standard denominator of exchange is arbitrary - the numéraire could just as well be wheat as silver. But somehow, in reality, it is often silver, and almost never wheat. Why is this?

Indeed the numéraire is arbitrary, especially with modern electronic accounting. It is a cosmetic role. We could indeed all do our books in wheat. But the intuitive assumption - that whatever is the standard denominator for transactions, the numéraire, becomes "money" - is quite wrong. The causality goes the other way around. Money becomes the numéraire. There's something going on here, Mr. Jones.

The cosmetic role hides a much more important phenomenon: the anomalous demand for "money." Intuitively, the commodities historically used as "money," such as gold and silver, are not particularly useful to anyone. Yet they are highly sought after. Carl Menger, whose theories on the subject are almost but not quite right, put it like this:

There is a phenomenon which has from of old and in a peculiar degree attracted the attention of social philosophers and practical economists, the fact of certain commodities (these being in advanced civilizations coined pieces of gold and silver, together subsequently with documents representing those coins) becoming universally acceptable media of exchange. It is obvious even to the most ordinary intelligence, that a commodity should be given up by its owner in exchange for another more useful to him. But that every economic unit in a nation should be ready to exchange his goods for little metal disks apparently useless as such, or for documents representing the latter, is a procedure so opposed to the ordinary course of things, that we cannot well wonder if even a distinguished thinker like Savigny finds it downright 'mysterious.'

(Prof. Dr. Menger declined to comment on the still more advanced civilizations of the 20th century - which managed to dispense with even the metal disks. "Progress," he muttered, and slammed his portcullis on your correspondent's toe. Inside, someone cocked an arquebus.)

This anomaly provides our definition of "money." By UR's house definition, any commodity which experiences Menger's anomalous demand is "money." By this definition, if there is anomalous demand for silver, but none for wheat, silver is "money" and wheat is not. But we can still construct a marketplace in which silver is money, and wheat is the numéraire. It would certainly be weird - but it would work perfectly.

Of course one can define this big, vague word, "money," however one likes. If you define it as the numéraire, wheat is "money." But this would leave Menger's anomaly without a name.

First we must discard one plausible theory of the anomalous demand, which is that money's use as numéraire causes the anomaly (rather than vice versa). In our abstract marketplace, this hypothesis is easy to falsify.

If you wish to trade oil for corn in a wheat-priced market, you do indeed need to sell oil to buy wheat, and buy corn with that wheat. So you need wheat. However, your demand for wheat is entirely transient - it exists only for the time it takes your trade to execute. Thus the total stockpile of wheat required to lubricate a wheat-priced market is the maximum amount of wheat that concurrently executing trades will use in parallel. On an efficient electronic market, this number will be negligible. On a really efficient market, it will be zero.

Thus, the use of wheat pricing in a marketplace creates no significant demand for wheat in that marketplace. Thus, it cannot possibly be the cause of any such anomalous demand. Similarly, if there is anomalous demand for silver, we know it cannot result from the use of silver as a numéraire. Thus the causality can only run in the opposite direction. First, silver experiences anomalous demand; then, it becomes the standard denominator.

The actual cause of the anomalous demand is no big mystery. It is the natural desire of many actors to make exchanges across time.

Rather than exchanging present oil for present wheat, an actor may wish to exchange present oil for future wheat - for instance, if he has oil now and wants to make sure he has bread next year. (In some cases this demand can be satisfied by a commodity futures market, but this requires the actor to know exactly what good he wants for his oil, and when. Certainty about one's future demand schedule is certainly not an implication of rationality.)

Therefore, actors engage in a behavior for which the natural English word is "saving." But this word was abused to well past an inch of its life by the 20th-century economist. To be precise, therefore, I will call it "caching."

In caching, actor X exchanges A at time T1, for B at time T2, with two exchanges. At T1, he trades A for some caching medium M. He then stores M until T2. At T2, he trades M for B. Rocket science, this is not.

Key point: the demand is anomalous because X does not actually consume M. For instance, if M is silver, X does not make jewelry out of it, use it as a paperweight, pour it down Crassus' throat, etc. Therefore, ceteris paribus, use in caching increases demand for M. Hence the anomaly.

If T2 equals T1, caching degenerates into the transient transaction described above. Transient transactions do not create anomalous demand. Non-transient transactions do. At any time T, we can observe a stockpile Sm - yes, the "money supply" - of this marketplace. This is simply the sum of all M stored by caching actors. It clearly represents new demand for M - and the longer the caching period (T2 - T1) of a cache, the longer it contributes to Sm.

So, for instance, if you are paid in silver and live paycheck-to-paycheck, you make only a minimal contribution to Sm, because you never hold very much silver. The boss gives you a little leather bag of it on Friday; you blow it over the weekend on Colt 45, cheeba and Doritos; which run out by Thursday; and so on. You are conducting exchanges across time - but not much time. It is your boss's boss's boss, the fat Armenian, with the big barrel of thalers in his basement, who really makes money money.

Thus in the case of the anomalous demand, we see one stabbed corpse and one bloody knife. And thus we feel comfortable in calling any widely used caching medium money. Moreover, since cachers of silver are inclined to do their accounts in silver, it is not hard to see how silver becomes the standard denominator of transactions - the numéraire.

This does not tell us why silver is a good caching medium, and wheat is not. But it gives us the tools to at least ask the question.

We must ask it subjectively, of course. From the perspective of actor X, wishing to exchange A at T1 for B at T2, choosing some good to serve as M, what makes some Ma better than some other Mb? Does this depend on: the nature of A? The nature of B? Or the subjective desires of X?

Surprisingly, the answer is "none of the above." X's choice depends only on Ma, Mb, T1 and T2. It is objective; it depends on future information, but objective future information. If the exchange rate Ma/Mb at T2 will exceed the exchange rate Ma/Mb at T1, with any storage-cost differential factored in, Ma is a better caching medium than Mb. Otherwise, Mb is better. In either case, one medium beats the other for any A or B.

In plain English, if Ma is appreciating against Mb across T1-T2, Ma is a more desirable money than Mb. Otherwise, vice versa. Of course, this calculation must include the cost of securely storing Ma or Mb for T2-T1, which is prohibitive for many goods - salmon, for instance.

Of course, this requires X to know the future of two commodity prices (Ma and Mb). This is by no means a trivial feat of prophecy - highly profitable, indeed, if it can be done. But prophecy is in fact the least of X's problems. He has a worse problem. He is in the land of game theory.

The trouble is that X is just one actor in a world of many other actors. And because any widespread use of any Mx as money increases the demand to exchange any A for Mx, ceteris paribus, it will also increase the exchange rate between A and Mx. Moreover, if many actors use Ma for money but not Mb, the exchange rate Ma/Mb will increase.

But wait - this is the input to our calculation. Unfortunately, it also seems to be the output. The computation is self-referential. X is looking for a Nash equilibrium - he needs a strategy that works well for him, assuming everyone else is using the same strategy. Ie: game theory.

Fortunately, good mathematics never conflicts with good sense. So let us confine ourselves to the latter, and apply it to our silver example. Starting from an imaginary prehistoric point in which there is no money at all, suppose every X who produces anything - wheat, oil, salmon, frozen concentrated orange juice, any A - chooses to cache in silver, exchanging these products for silver.

Ceteris paribus, this new demand decreases the exchange rate from wheat to silver, oil to silver, and anything else to silver. Ie, it raises the price of silver in wheat, oil, and anything else - including other potential Mx, such as gold. Silver, previously a minor industrial metal of minimal utility - pace Menger - experiences a rush of anomalous monetary demand which greatly exceeds its previous industrial demand.

Thus, silver's price in wheat, silver's price in oil, etc, etc, all skyrocket. But most important to the cacher, silver's price in the alternative monetary good - gold - skyrockets as well. Thus if Ma is silver and Mb is gold, Ma/Mb skyrockets - since everyone is caching silver, and no one is caching gold. So, assuming that everyone is caching silver, everyone should cache silver. And this is our Nash equilibrium.

On the other hand, this logic is not metal-specific. It works exactly the same way for gold. If everyone is caching gold and no one is caching silver, everyone should cache gold and no one should cache silver.

And in the worst case for X, at T1 everyone is caching silver. Therefore, at T1, X trades his wheat for silver, buying silver at the stratospheric price created by all other silver cachers. Sadly, for reasons unknown, somewhere between T1 and T2, everyone decides to exchange their silver for gold. They shouldn't, but that doesn't mean they won't. Sadly, X is the last to hear of this trend.

When all the formerly cached monetary silver returns to the industrial silver market, we have the reverse of anomalous demand - anomalous supply. Thus, ceteris paribus, we would expect the price of silver in anything to be depressed below its normal equilibrium. Of course the price of silver in gold will suffer the worst, for gold is going up as silver is going down. So X buys high, sells low, and then has to buy high again. Yea, truly is he jobbed in every orifice.

So what M should you cache? Confused enough yet? Let's take a step back and try to profit from this confusion.

First, we see that at least one good must experience anomalous demand and become money, because the pattern of caching is a human universal.

Second, we see that the problem is path dependent. We have yet to establish the exact criteria that make a good M, but obviously multiple goods (silver and gold, in our example) can satisfy these criteria. Yet it is perfectly possible to construct an economy in which actors cache in silver but not gold, or in gold but not silver.

Third, we see that coexisting monies are unstable. A natural question is: given the uncertainty, why not cache in both gold and silver? Why doesn't everyone just diversify their portfolio, so to speak? This seems much more stable than picking one of the two. In fact, it is much less.

The problem is that anomalous demand is a positive feedback loop. Suppose both gold and silver are monetized. But they are separate goods, each with its own supply and demand, so the bimetallic ratio, Mg/Ms, cannot be fixed. And once it starts to drift in favor of either, cachers will recognize that drift and convert their caches to the money which is gaining. Causing it to gain even more - positive feedback. Eventually, one of these goods will be monetized and the other will lose its anomalous demand. After suffering from anomalous supply, of course, while industry works off the monetary stockpile.

(This actually happened, against silver and in favor of gold, in the late 19th century. Gold and silver had coexisted as money since classical times, largely because the world was an inefficient patchwork of gold countries and silver countries - China and India, for instance, were on silver. As trade became global and efficient under British hegemony, Britain being on the gold standard, silver could no longer compete and was effectively demonetized.)

No matter how many goods you try to diversify your anomalous demand across, in an efficient market this "Highlander effect" will leap up and bite you in the butt. Since X is seeking a Nash equilibrium, he must assume that if he is diversifying, others are following exactly the same strategy. Thus they are smearing their anomalous demand across a basket of goods, jacking up the price of each a little rather than one a lot. Nonetheless, what can be jacked up a little can also fall back a little - and will, as anomalous demand concentrates in a single good, with the first to buy that good profiting the most. "There can be only one."

And thus the problem is revealed as not a problem at all - under normal circumstances. Under normal circumstances, the good to cache is the good that everyone else is caching, ie, money. Under normal circumstances, no one sees the origin of money - money is already there. All the anomalous demand is concentrated into a single good. That good is money, and no grasp of game theory is required to tell what good it is. If a time machine transported you into any normal, sound economy, it would be immediately obvious.

Under normal circumstances, it is extremely imprudent to cache in any other good than the standard money of the economy - eg, to cache in gold, when the standard is silver. Why? Because if you are doing it, other people are probably doing it, too. You are probably not the first. Thus you are paying a monetary premium for your gold, and thus caches already exist. If more people buy in after you, if more anomalous demand appears, the premium will increase and you will profit. But if at any point this trend reverses, it has nowhere to go but down, and you will get jobbed as described above. You can only win if gold takes silver's head and emerges as the new monetary standard.

This pattern may seem familiar to you. There is actually a word in English for an abortive attempt to create stable anomalous demand. That word is "bubble." Anything - a metal, a baseball card, a worthless Internet stock - will keep going up if people keep buying in. Anomalous demand. Also referred to as the greater fool theory.

But there only has to be one good which experiences stable anomalous demand. That good is money. Money is the bubble that doesn't have to pop. Any good that tries to replicate this stability alongside the current monetary standard will either (a) replace that standard, or (b) pop. Probably the latter. If your Internet stock does not actually have a chance of becoming the new global currency, therefore, you are well advised to price it as if no anomalous demand existed - and avoid the greater fool theory.

Intuitively, you can think of a monetary system as a sort of battery. When actors cache in silver, they are charging the silver battery - pressurizing the bubble that doesn't have to pop. When they spend their caches, they are discharging the battery. Naturally, the exchange rate between wheat and silver is set by the collective desire to exchange silver for wheat - discharging the battery - and the collective desire to exchange wheat for silver - charging the battery.

This analogy breaks down in one important place: there are no units with which we can measure the "charge" of the battery. All we see is the set of exchange rates between other goods and silver. Each of these exchange rates has the same denominator - silver - and a different numerator - oil, wheat, etc. We can no more mix them in calculation than we can add furlongs to bushels. Broadly, we can see that silver must be money, because we observe Menger's anomaly - its desirability is completely out of whack with its utility. But there is no precise means by which we can quantify this anomaly.

In practice, however, we see that the anomalous demand for a standard monetary good is so great that the normal, industrial demand appears negligible. It can even be zero, although it cannot have always been zero - or no one would have cached the good in the first place, worthless objects being worthless, and it would not have become money. However, once the good is standardized as money, it is stable and can be as useless as it likes.

If we assume for purposes of argument that anomalous demand is the only demand for money, we observe an interesting phenomenon first noted by Hume. Since money is not used by those who cache it, a supernatural force which replaces every gram of silver with two grams - assuming said force rewrites all contracts which mention silver accordingly - will leave the economy exactly the same. Everyone who, yesterday, was willing to exchange a bushel of wheat for a gram of silver, will today demand two grams of silver. The charge in the battery is unchanged; its size is doubled and its density is halved.

But note that this assumes an identical distribution of the silver. If our supernatural force doubles the amount of silver in the world by quadrupling the caches of Americans, while leaving the caches of the unfortunate Europeans alone, we will see increases in the exchange rate of pickup trucks to silver, but not in the exchange rate of escargot to silver. As for goods that both desire, the Americans will get more and the Europeans less. This is known as the Cantillon effect. Our simplistic battery analogy has no room for it.

Likewise, our supernatural force can create a zillion tons of silver without affecting prices at all, if those zillion tons are placed in the custody of an actor who does not spend them (ie, whose demand for any good is zero at the present price). Again, our battery analogy has no room for this weird corner case. The lesson: use the battery analogy, but be aware of its limitations.

We are now in a position to understand the qualities of a stable monetary commodity. First and foremost, money must hold a charge - it must respond to anomalous demand with a stable increase in its price vector. It must not respond to anomalous demand by a mere increase in production.

Thus we see the difference between silver and wheat as monetary candidates. Wheat is a fungible and storable commodity - it has storage issues, but let us disregard these for a moment. It is not transportable, but electronic warehouse receipts can surmount this. The problem with wheat as money is that no amount of anomalous demand can increase its price above the cost of farming, which can generate an indefinite amount of wheat.

In the battery analogy, wheat leaks. Suppose that the world is on a silver standard, when suddenly our supernatural force destroys all silver and removes the very element from the periodic table. The market must choose some new money. If some set of actors try to treat wheat as money and buy into a wheat bubble, they will not send the price of wheat to the moon as they build up their caches. Rather, they will generate an arbitrarily absurd stockpile of wheat. Meanwhile, those who bought gold instead will be sitting on their profits. The wheat bubble will pop, the wheat stockpile will be sold as food, the wheat cachers will get jobbed.

Compare this to a precious metal, such as gold or silver. These are monetary metals precisely because of their restricted supply. Mining precious metals is an exercise in diminishing returns - the more you extract, the more expensive it becomes to extract more.

If our present accursed monetary system were to vanish from the earth, the ideal monetary replacement would be gold rather than silver, simply because annual gold production (leakage) is only about 3% of the global monetary stockpile (which is large, because gold retains a nontrival monetary role.) This is very significant leakage, but it is much less than the leakage in silver - in which annual production is comparable to the global stockpile. Thus it is much harder to monetize silver, because early buyers will be diluted by a much larger wave of new supply.

Since we understand supply and demand, we can see that any new money produced satisfies and thus cancels our anomalous demand. Since we understand that the anomalous demand for money is self-dependent, we see why people take leakage so seriously. Indeed there is another name for monetary leakage - "counterfeiting." On a natural metal standard, mining of metal is the precise equivalent of counterfeiting.

Leakage is extremely dangerous not just because it effectively equates to mass confiscation, but also because it destabilizes the monetary standard itself. Assuming, as in Hume's example, that leakage is uniformly distributed (which it won't be), we would expect to see a natural upward drift in all prices as anomalous demand is diluted. Note that this includes prices of potential competing moneys - Mb to the present standard Ma. If silver leaks, wheat prices in silver will tend rise - but so will gold prices in silver. (Assuming that gold does not have its own issues.)

And when Mb/Ma is increasing, we know what this tells us. It tells us that gold is a better metal to cache than silver. If this trend can run to completion, replacing silver with gold as a monetary standard, it may well do so. And there is no reason it has to do so slowly. The result will be a monumental economic cataclysm in which wealth is redistributed from the aforementioned argentiferous Armenians to a new generation of aurophilic speculators - almost certainly Jewish. Few political systems can withstand such an event, good for the Jews though it is.

In an ideal monetary standard, the stockpile of money would be fixed, and there would be no mining or counterfeiting whatsoever - and thus no leakage. No natural good satisfies this criterion, but artificial commodities can be constructed - ie, "fiat currencies." Thus we see another counterintuitive truth: a fiat currency can in fact be a better money than gold or silver. Unfortunately, it also lends itself much more readily to pathological abuse. Paul Erdös became a world-class mathematician by taking speed; you or I would just become speedfreaks.

We now understand money. Which means we're almost done! All we need to understand is interest and the loan market.

Loans are extremely simple. A loan is a promise of future money. Specifically, it is the promise, written by some party Y, to pay some quantity Q at some future date D. The price of this loan is the price of future money in present money, modulo the probability that Y is a scumbag or loser and will default on the loan.

Default risk is easy to factor out of this equation, so let's just deal with it now. How does a market estimate the probability that a loan will default? This probability itself can be isolated and sold, via an instrument such as the (unjustly) notorious credit-default swap. Thus, the price of a risky loan is the price of a risk-free loan, minus the price of a risk-free CDS on said loan.

A CDS market is a case of a prediction market. How do prediction markets predict the future? Magic? No, supply and demand. If you think the price of a prediction instrument does not match its actual probability of payout, and you are right, you profit. If you are wrong, you lose. There is no magical law which requires the intersection of supply and demand to equal the actual probability - in fact, defining "actual probability" is itself an almost magical challenge.

Thus, the price of a prediction instrument is only as good as the collective intelligence of its participants. Successful prediction markets, such as Vegas for sports, are very hard to beat, because they have been active for a long time and experienced a Darwinian effect - gamblers who know their sports win and keep playing, gamblers who don't lose and drop out. Exactly the same effect is seen in any non-dysfunctional financial market.

Even without these exotic instruments, loans are easy to standardize by estimating default risk and constructing pools of diversified loans, thus putting the central limit theorem on your side. One loan with a 5% chance of default is a very scary thing to buy, but an equivalent share in a pool of 100 uncorrelated loans, each with the same chance of default, is much easier to handle. Of course, the probability must still be estimated, but this is a well-known profession - estimating the default probability of loans is (in a sound economy) the job of "banking." Like any job, it's not easy but it can be done.

With that said, let us analyze the loan market assuming zero default risk. Again, the price of a loan is the price of future money in present money. This is always less than 1 - eg, a 2011 gram of silver might cost 900 milligrams in 2010 silver.

But what does this mean? Why does this market exist? Let's look at the demand and supply sides separately.

Consider our cacher X again. Under what circumstances should X buy a loan? Answer: X should buy a loan if, and only if, he knows his T2 - the date at which he will spend his cache. If his T1 is 2010 and his T2 is 2011, he will have more silver in 2011 if he buys 2011 silver with his 2010 silver, rather than just caching his 2010 silver until it turns into 2011 silver.

But wait - is this leakage? Does the existence of a loan market decrease anomalous demand? Not at all. The silver cache has just been transferred - instead of X holding the silver, it is Y, the borrower. Neither anomalous demand nor the silver stockpile has changed in the slightest.

A more interesting question is why X should not buy a loan if he does not know his T2. He has a barrel of silver in the basement - he might want to spend it on something in 2010, or he might want to spend it on something in 2011. Suppose he just buys a 2011 loan, anyway? A loan is a negotiable instrument - anyone can resell it. If X decides that he wants to spend his cache in 2010, he can just sell the loan on the open market, get the money back, and spend it.

As it happens, we have already solved this problem. We solved it above in our discussion of anomalous demand. X, when he performs this unnatural act, is caching a good (the loan) which he may, or may not, use as money - buying and reselling, as above. If he turns out to actually want 2011 money, he has correctly anticipated his future desires and is not using the loan as money. Otherwise, his demand is anomalous. If he is the only one doing it, fine - his actions will have a minimal effect on the market. But he won't be.

Any societal pattern of such behavior will create exactly the same bubble phenomenon that we see in any failed attempt to create an alternative money. When the herd of Xs, who should simply be caching money, buy 2011 loans, they drive the price of 2011 loans up (lowering interest rates). When they sell 2011 loans - because they actually wanted 2010 money, not 2011 money - they drive the price of 2011 money back down. Therefore, unless they get into the bubble early and out early, they get jobbed. Just as in any bubble. Lesson: don't buy any good you don't intend to use, unless that good is money.

We also see that the longer the term of the loan, the lower the market demand for it. For any X, two one-year loans, strung back to back, is an adequate substitute for one two-year loan. But for an X whose T2 is in 2011, not 2012, only a one-year loan will suffice. Thus the longer the loan, the fewer buyers who can use it.

In real societies, however, demand for long-term loans is quite nontrivial. If you intend to retire 20 years from now, it is quite reasonable to buy a 20-year loan to fund your retirement. As we'll see in a moment, you will get a better interest rate than if you strung out 20 one-year loans in a row.

Now, let's consider the supply of loans. Who would sell a loan? There are many reasons to borrow, of course, but generally the borrower is involved in some productive endeavor. Your endeavor certainly has to be productive if you're getting 900 kilos of silver in 2010, and turning it into a metric ton in 2011.

On a precious-metal standard, the simplest form of productive enterprise is a mine. You spend your 900 kilos digging the hole; you pull a metric ton out of the hole. A business that earns its return through commerce, rather than monetary production, looks no different to the lender.

The important point about productive enterprise is that production always takes time. There is no possible enterprise that can turn 900 kilos of silver into a ton of silver in one second. This dictates the term of the loan.

And again we see that the supply of 2-year loans will exceed the supply of 1-year loans at any interest rate - because an enterprise that produces return after 1 year can sell a 2-year loan by selling one loan after another, whereas one that actually takes 2 years is quite ill-advised to sell a 1-year loan. (The result being the inverse of the bubble scenario described above.) If you ever see an Austrian economist talking about "more roundabout means of production," all he means is this.

When we combine these supply and demand functions, we learn something very important about the sound economy: that its yield curve (the market interest rate for every term) slopes upward.

Interest rates at longer terms are higher than those at lower terms, because loan prices are lower at longer terms; longer loan prices are lower because the demand is lower, and the supply is higher. No ceteris or paribus is necessary. If you see an inverted yield curve, you know that you are looking at a very, very sick loan market. Don't walk away - run away.

Which brings us to our final subject: pathological economics.

Barring bizarre and unforeseen real-world phenomena, such as a zillion-ton asteroid of silver landing in Brazil, a sound economy is stable. Supply is always equal to demand, bubbles do not exist in commodities or financial instruments, and the monetary standard suffers only negligible leakage from counterfeiting or mining.

Unfortunately, misgovernment is the fate of man. Misgoverned economies appear to be an especially eternal fate. In fact, there are almost no historical cases of a sound economy as described above. Someone is always screwing up something.

There are two basic patterns of economic misgovernment. One: the government fixes prices. Two: the government tampers with the monetary system. The former is heinous; the latter is diabolical.

Fortunately, just about everyone knows the effect of price-fixing: surplus or shortage. Somehow, the principle of supply and demand has actually become part of democratic folk wisdom, like multiplication tables, the names of the Greek gods, and pressing "1" to get your voicemail. We must be thankful for this mercy, which surely cannot last forever.

The simplest way to tamper with the monetary system, known since well before Jesus was a little boy, is to debase a metallic currency. The state simply forces its subjects to accept the debased currency at par with the old, good money - eg, to accept an alloy of silver and nickel in payment for debts in pure silver. Thus it creates leakage, without actually creating silver. It taps the battery.

In many cases, debasement is more convenient than taxation, to which it is obviously equivalent. Some remarkably effective governments have employed it. For instance, during the Seven Years' War, Frederick the Great (fighting for Prussia's life against a coalition of all the surrounding countries) debased the currency. Of course, he also restored it within a year after the war. That's because he was a king, not a professor. But I digress.

Far nastier is the practice of debasing the currency with loans. Thus, rather than being compelled to accept a silver-nickel alloy as silver, subjects are compelled to accept a promise of future silver (typically written by the government or its closer friends) as present silver. The output of this leakage is not silver, but lower interest rates. The practice is especially insidious because its blessings are visible to all borrowers, whereas the curse of monetary dilution is almost invisible.

Modern fiat currencies were not, like the optimal fixed-supply fiat currencies I would like to see, created all at once by actual fiat. They were created by incremental loan debasement. The 19th-century classical gold standard is quite misnamed, for instance - it was not actually a gold standard, but a pound standard. Behind the pound sterling was a certain amount of gold, and a certain amount of British national debt - denominated in gold. Not at all the same thing.

The pound, of course, was "convertible" into gold. Similarly, shares in Bernie Madoff's Ponzi scheme were convertible into dollars. Many people converted them into dollars, and felt convinced as a result that they were "worth" dollars. Of course they were simply shares in the underlying assets, and could be worth no more or no less.

Thus a pound was a share in a pool of gold, and a pool of British debt - the latter larger than the former. After WWI, the latter became grossly larger than the former; the pretence could no longer be sustained; and Britain "went off gold." In reality it had not been "on gold" since the 17th century. It had been running a hybrid currency - part gold and part fiat. The fiat quality arose from the fact that Britain's national debt, though denominated in gold, could not be paid in gold. Thus in gold terms these were simply bad loans, ie, worthless paper - ie, fiat.

Normally, in a bankruptcy, debt becomes equity, and so the old gold-denominated government debt morphed (without any formal process) into its modern state of government equity. And thus we see the modern fiat currency, a unit of which is essentially a share in the government. Without voting rights or dividends, alas, but a share nonetheless. Equity is the lowest tier of debt. If a note confers no rights, it is equity.

On an (open-ended) fiat currency the potential for pathological finance is almost unlimited. For instance, perhaps the most pernicious practice of fiat finance is the issuing of loan guarantees, which now in USD total in the tens of trillions. A loan guarantee is simply a camouflaged loan, disguised for the usual corrupt reasons. When the government guarantees A's loan to B, what is really happening is that A is lending to the government and the government is lending to B. Thus, for instance, when FDIC guarantees your loan to your bank (a "bank deposit"), you being A and the bank being B, you are lending to USG (whose payment is sure, because the loan is denominated in USG's own equity), and USG is lending to the bank. The latter is the corrupt transaction; the former is the disguise.

But we could go on in this vein forever. Again, the point to repeat: there is no simple or gradual way to unwind a pathological financial system. It must either collapse or be destroyed. On the other hand, there is no reason it can't survive forever, like a Cuban truck - stinking horribly, bellowing like a bear giving birth, and running no faster than fifteen miles an hour. All we can hope is that, however it turns out, it will be good for the Jews.

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

MM:Very good. In 1980 I came up with the "rock economy" model. Whaaaat? Suppose a trillion identical rocks fell to earth. Could they serve as money? In the limit, this is an infinite "stock / flow" ratio. Of all earth's substances, gold has the highest such ratio. Someday the public may understand what you've done here.

For those who can't get enough eccentrics on the internet going on about economics, Mike Sproul (who some of you may remember commenting at the Mises blog) has been arguing with Scott Sumner recently over Sproul's favorite ax to grind, the real bills doctrine. Sproul rejects the "Quanity Theory" of money in favor of a "Backing Theory", denying that there has ever been such a thing as fiat money.

You're not giving a crash course; you're obfuscating and complicating things. You make Austrian economics almost as complicated as mainstream garbage econ. Why don't you just post excerpts of Rothbard, Hazlitt, or others instead of these very long, very rambling posts?

In the time it takes to read two of your posts on Austrian economics one could finish Rothbard's What Has Government Done to Our Money and understand much more.

And could you please get to addressing Rothbard's Anarcho-capitalism and stop pretending you're not reading your comments?

Pals, he has loosely addressed it. He says that anarcho-capitalism is an obvious idea that nevertheless has never existed. He gave the positively Chicagoan argument that $20 bills are not left lying on the ground, and the absence of government is a big juicy $20 bill. Furthermore, he thinks order is more important than liberty.

That's the argument of someone who's not actually read any Rothbard. Rothbard's most repeated maxim is that liberty is the mother of order, not the other way around.

More specifically, this same dumb Chicago $20 bill argument could be applied to central banking, central planning of industry, or any other form of organized public rape. Rothbard's point is that if people and the dumb intellectuals of society believe that something should be centrally-planned and handed over to government, it will be and it will be disaster for all. If people don't believe it and don't let this happen, it won't be and people will be happy, free and prosperous. This applies equally to central banking, industrial central planning and government itself.

Soviets in the 1980s also believed potato central planning was a $20 bill on the sidewalk for whoever can run potatoes. They almost starved. When they realized this was dumb, they stoppd centrally planning it and now they can now eat potatoes.

The same is true for central banking and government. Get rid of them and you have liberty and that will produce order.

It's astounding Mencius has called Rothbard one of the greatest intellectuals of the 20th century and makes those arguments. In fact, I don't recall him making them. Can you provide the source?

Mencius, you could use a sock-puppet and answer this and still maintain the illusion that you don't read your comments.

Rothbard didn't come up with the "mother, not the daughter" quote, Proudhon did. From MM's perspective, that's a big warning sign.

The $20 bill represents the amount that the populace can be exploited by the government. It's not about planning, it's about extracting. Pretty much the Franz Oppenheimer view of Der Staat (which in turn was taken up by Nock, Chodorov and Rothbard). MM used the sidewalk analogy here. His posts mentioning Rothbard are here, and he criticizes his radical libertarianism in a number of them.

Admirably clear. But doesn't the Nash equilibrium on a single money depend on the aggregate demand for future goods vs present goods to continue increasing? If the demand for that intertemporal substitution begins to decrease, there will be anomalous supply, and the best medium for intertemporal substitution will be anything except the current choice of money?

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

doesn't the Nash equilibrium on a single money depend on the aggregate demand for future goods vs present goods to continue increasing?

No. So long as the demand is nonzero, then something will be money. Certainly the value of money will reflect changes in demand for it. But a change in demand for future goods will not change the logic of the game (which has already been "won" long ago) in terms of picking the winning commodity.

Although MM has attacked minarchism fairly convincingly, he appears to have a blindspot as far as anarchocapitalism is concerned. So far as I know, he has never really grappled with it. Or at least not with AC the way I view it. (I hope to change that someday.) I am pretty sure, though, that among whatever other criticisms he might have, he would make the same criticism of it that I would: it might be stable once you get it up and running, but actually getting it started as a result of a collapse, revolution, reboot, or what have you is not possible.

Speaking very broadly, in history the only times we see liberty increasing (much less ordered anarchy) are colonization episodes: i.e., people spread out into un- or scarcely populated new lands. The lack of anything there means they are free to design new government; that, combined with the very low exit costs when there is frontier around, are the magic ingredients of liberty. Obviously, these conditions are no longer present anywhere.

That said, I think there may be a path to AC through neocameralism. Namely, that over the long course of time, ownership of sovcorps would tend to accumulate in charitable organizations.

I actually think that MM's vision is almost degenerate with anarcho-capitalism.

In an anarcho-capitalist situation, people will end up owning cities (or some similar unit.) They will then contract out defence of those cities.

The difference is that MM would argue that the defence contractor ends up being sovereign to the city, while the anarcho-capitalist maintains that the city can change defence providers peacefully. At least, with no more hassle than changing water suppliers.

Which is right? Well, nobody's tried a capitalist approach to defence before, so we don't know.

There is a bit of an interesting circularity here, in that the defence contractor would probably end up securing the banks that handled their salaries. So if they really object to being replaced, the city's CEO's assets would get frozen, instead of their own.

On the other hand, if that's true, I don't see why a regular sovereign army can't do the same thing, although they can't be fired en masse. Presumably there's some good reason this doesn't usually happen, and this reason will still apply.

"Planning" in my libertarian view, is just codeword for extracting. You could extract money, or you could extract status, power and gravitas. All are awful. Therefore, the comparison of central planning to government as $20 holds.

Also, your comparison of MM's idea of money as a bubble that doesn't pop to Sumner's silly monetarist garbage is utterly wrong. I won't waste time explaining why; just please don't embarass yourself and repeat this comparison again.

Finally, the posts you provide offer nothing in terms of a critique of Anarcho-capitalism.

Leonard,

Yes, MM does have a blind spot to Anarcho-Capitalism and that's all the more surprising given his admiration of Rothbard.

And no, liberty doesn't just increase through colonizing. Look at the Soviet Union. One day, the Soviet citizens thought that the government running everything was a good idea, and everything was a disaster. The next day, the government stopped running most things, and everything improved, and people gained enormous liberties.

Thus Rothbard's Great Awakening idea. It's really not as ridiculous as the name suggests. The idea is that once people realize something shouldn't be run by the government, the government will stop being able to run it. The government not running it will not produce disaster, chaos and war; it will produce peace, prosperity and liberty. And so things improve.

The real problem is not the guns of the state, it is the brains that think that the guns are there to protect you, when in fact they are the problem.

newt, the iron law simply says that elites will eventually control any possible organization. Well, yes. I don't see how AC "runs afoul" of that. Of course protection companies will be stable organizations, controlled by elites. So what? (Indeed, the idea of being governed by organizations not controlled by elites is scary.)

As for rationality, perhaps you could say more. It is true that people must be at least minimally rational or else they cannot do much of anything. But we know they are at least this rational. I see no reason to believe that AC is particularly demanding of rationality from the average man; if anything, it is much less so than democracy. In democracy, arationality among the masses must pollute the ruling organization. This is not true of AC, or for that matter neocameralism.

"newt, the iron law simply says that elites will eventually control any possible organization. Well, yes. I don't see how AC "runs afoul" of that. Of course protection companies will be stable organizations, controlled by elites. So what? (Indeed, the idea of being governed by organizations not controlled by elites is scary.)"

If they are so stable what keeps them from taxing their subjects *ahem* customers at the Laffer maximum and in that case, what exactly have you gotten rid of the "state"? Of course the idea of being governed by non-elites is scary but wasn't the point of AC not to be governed at all but to be "free"?

"As for rationality, perhaps you could say more. It is true that people must be at least minimally rational or else they cannot do much of anything. But we know they are at least this rational. I see no reason to believe that AC is particularly demanding of rationality from the average man"

Int he limiting case where it basically turns into another government, it is not, just like most governments are not.

"if anything, it is much less so than democracy. In democracy, arationality among the masses must pollute the ruling organization. This is not true of AC, or for that matter neocameralism."

I support democracy? God. What gave you that idea? Of course AC and neocameralism do not require as much rationality as democracy. Nothing requires people to be as rational and yet as altruistic as democracy. People are assumed to be smart enough and rational enough to figure out the best policies for the government by themselves and they are supposed to vote to further the public good even though in the marginal case, their vote is completely irrelevant and therefore, rationally speaking, nobody should vote at all. Democracy is a mass of contradiction and in practice collapses into a party oligarchy in short order. Parties which are of course above all responsibility of rule and without any incentives to further the interests of the country.

It is difficult to say more about rationality or how that applies to the ILOO here. The problem is that we can no longer rely on the convenient rational actor hypothesis when discussing this and therefore, whatever I say has a large factor of uncertainty in it and therefore needs quite a few examples to make clear and convincing.

Suffice to say that there are major technical as well as psychological factors at play. The technical factors are that large organization always require quick decisions. If a country gets attacked, it does not have the time to conduct a plebiscite to decide whether to counter-attack. It has to act immediately. For it to act immediately, it must have high level leaders but then what is there to keep them from getting even more power? The second major technical factor is that large organizations need a lot of decisions to be made and these decisions must be made by a competent authority. However, the great mass of people are not a competent authority and do not have time to make these decisions or to review them in detail.

The psychological factors are many and I will just mention two major ones here. The first is that people want leaders. They want somebody who they can hand off the reins of government to and then go on about their lives. They may not admit it but actions speak louder than words. The second major factor is that the vast majority of people are pre-disposed to existing leaders due to various reasons such as gratitude, trust, etc... and stay that way at least as long as a) the leaders do a halfway decent job, and b) a suitable set of replacement leaders show up.

I really cannot recommend Political Parties by Michels enough here. It is available for free on the Internet somewhere. Michels analyzed the organization of the socialist parties around in 1915 (when this book was published) so the examples might feel a bit dated but he is an insightful author.

The convention here is to use italics to quote. They're not ideal, but they're the best from the small palette of options we have.

what keeps them [protection agencies] from taxing their... customers at the Laffer maximum

Competition from other agencies.

Of course the idea of being governed by non-elites is scary but wasn't the point of AC not to be governed at all but to be "free"?

There are probably many views as to what "the" point of AC is. Suffice to say, though, that while some men can be ungoverned without being problems, not all men can. Criminals may be free, but they should not be.

The idea of a mere anarchy -- that is, complete freedom; anarchy with no government at all -- is frightening for any one with more than passing acquaintance with human nature. There must be government, and no large group of men can be happy without it.

As for what the point of AC is in my own opinion, I would say the point is to allow the possibility of a moral society. That is, a society in which everyone including the agents of government may live without moral compromise.

Mencius Moldbug has discussed and recommended James Burnham and Burnham's book "The Machiavellians" which analyzes Michels and his thought. So he's addressed this at least indirectly. And if I'm not mistaken he's talked about it directly before.

Leonard:Speaking very broadly, in history the only times we see liberty increasing (much less ordered anarchy) are colonization episodes: i.e., people spread out into un- or scarcely populated new lands.Speaking of which, have you read David Hackett Fischer's Albion's Seeds? In discussing the Scots-Irish/borderers he says the Turner thesis is false.

Pals:"Planning" in my libertarian view, is just codeword for extracting. You could extract money, or you could extract status, power and gravitas.Though that's highly non-standard (including among libertarians, which I count myself among every other day of the week), you're actually somewhat close to MM there. MM wants the owners of USG to be compensated entirely in dividends rather than influence. I think its a mistake to analogize those other goodies to money. Particularly when MM was talking about foreign aid and switched from situations where money flows down and power flows up, to where power flows down and presumably up as well. The reason he wants that is that extracting money is more efficient. The granting of monopolies used to be more common a long time ago, because kings had such a hard time raising money through taxation. John Nye's "War, Wine and Taxes" discusses that.

Also, your comparison of MM's idea of money as a bubble that doesn't pop to Sumner's silly monetarist garbage is utterly wrong. I won't waste time explaining why; just please don't embarass yourself and repeat this comparison again.I said they both had gripes with "price inflation" without saying their takes were comparable. I also characterized Sumner's reasoning as "wacky". Which is wrong, wrong wrong an completely different from your sensible characterization as "silly", right? Work on your reading comprehension next time before telling others not to embarrass themselves.

One day, the Soviet citizens thought that the government running everything was a good idea, and everything was a disaster.I think its hard to say what public opinion actually was. I don't see the Bolsheviks coming to power as much as a democratic phenomenon as MM does, but its likely that public opinion was at least in favor of socialism. Also, Russia was actually doing better than ever around the time it collapsed. Crisis of rising expectations and all.

The next day, the government stopped running most things, and everything improved, and people gained enormous liberties.Most Russians don't seem to remember it that way. They view the Yeltsin years as a disaster. Putin is revered because he represents a return to sanity and somewhat of a return back to the Soviet era.

The idea is that once people realize something shouldn't be run by the government, the government will stop being able to run itI think in the case of totalitarian countries, Bryan Caplan's focus on the elites makes more sense than political opinions of the mass public (although Caplan himself agrees with Rothbard on de la Boetie, which I find implausible once you accept Oppenheimer's view of the origin of the state). North Korea can continue creaking along even while most of their citizens would flee if given the chance, as long as the elites continue to support the regime. In Bruce Bueno de Mesquita's terms, its about the "selectorate".

Leonard:It is true that people must be at least minimally rational or else they cannot do much of anything.That reminds me, have you read What Does The Free Market Require? A favorite of mine.

newto311:If they are so stable what keeps them from taxing their subjects *ahem* customers at the Laffer maximumThat outcome is precisely what MM wants. We are currently far from that maximum, so I don't agree with him.

We are talking about oligarchs here, not competing firms operating in a system of laws which include anti-trust legislation (which admittedly has its own problems). I find it difficult to believe that there won't be a significant degree of collaboration between the agencies which leads to "artificially" high prices. You may have competition initially but one of the first things done will be to setup entry barriers.

There are probably ... can be happy without it.

Agreed. Seems like you have been reading some Carlyle.

As for what the point of AC is in my own opinion, I would say the point is to allow the possibility of a moral society. That is, a society in which everyone including the agents of government may live without moral compromise.

Who governs the oligarchs, i.e. the CEOs of these security agencies? They will become, for all intents and purposes, irreplaceable unless they do something stupid (and stupid here is not defined as killing an innocent civilian but making a wrong tactical move in their little game of state). The nature of power is thus that violence and coercion (moral compromise) is always a part of the state's activities. If you will look, MM only tries to make it predictable so that people can avoid it for the most part.

@GM Palmer

I think it might be worthwhile to qualify -- there must be government but it does not have to be a permanent one.

Wrong. If a "government" is not "permanent" then it is no sovereign by definition. Then we must shift our attention to the real government, the sovereign.

@Preakness

Mencius Moldbug ... directly before.

I second the recommendation for The Machiavellians. It is a great tour of the landscape of thinkers and ideas which can truly is classified as a study of what is instead of what ought to be. Burnham agrees with Michels. From what I know, MM agrees with Burnham.

@TGGP

That outcome is precisely what MM wants. We are currently far from that maximum, so I don't agree with him.

Its not what MM wants but what he has resigned himself to. I personally am not sure if a neocameralist government will actually tax its citizens at the Laffer maximum. Think of the tax as a dividend. Then how many publicly traded companies pay dividends anymore? Very few. It is because these companies are convinced that the best (or very good) investment is just themselves. The same would apply to the neocameralist state. The CEO has a pile of tax revenue. How is he to use this revenue efficiently? The same way he is using his other capital (the country) efficiently, throwing it into a free market. Something to wander about...

It would actually work better if they were not altruistic.

You have misunderstood my claim. I do not think that the people have to be altruistic in how they vote. That only requires rationality. They have to be altruistic in the sense that they vote at all. As economists are fond of saying all the time, voting has negative expected value. I think that voters need to be rational and self-interested in how they vote to have a well functioning democracy but by that logic, they wouldn't be voting at all and thus the contradiction.

Hardly wrong. One could imagine a state that ... band together and organize in times of danger.

Fine. What compels the citizens to go train at the right age? What organizes the training. Who decides the panel of 5 judges and how do those judges judge? Who ensures that this "law" will be reliably followed when there is a power asymmetry between the litigants?

Switzerland has by all means a decent government which is no doubt helped enormously by the high quality of the Swiss as well as their homogeneity but even they have a non-trivial governing structure that is quite permanent.

You can make citizens responsible for whatever you want but ultimately, you will still need managers and history shows that these managers tend to become permanent leaders. The Iron Law of Oligarchy has no exceptions.

Your version of economics works great if your economy consists of people digging up root vegetables. What happens when you invent labor saving technology, and you have no "leakage?" Aka, what happens if your economy grows faster than your money supply? Answer: you get deflation and the great depression in America. Which is why other more economically advanced nations, which used paper money, did not suffer as long or deep a depression as America did.You fail at economics.

"Aka, what happens if your economy grows faster than your money supply? Answer: you get deflation and the great depression in America. Which is why other more economically advanced nations, which used paper money, did not suffer as long or deep a depression as America did.You fail at economics."

This must be your first reading this blog, or at least the first time reading Mencius Moldbug on economics.

you're an idiot. just because you read Friedman & Schwartz and were stupid enough to be convinced by them, doesn't mean that the great depression was due to "deflation" and "not enough money", "no paper money", etc.

I am concerned by your implicit assumption about transitivity of desires. Given your axioms, it works with two commodities (wheat and oil in your example), but Arrow showed that with three or more commodities, transitivity is not assured. He used voting systems, expressions of desire for representatives, but the results transfer w.o.l.o.g.

I am further disturbed by your assumption of stationary valuations. I may highly value the first bushel of wheat (I gotta eat), but the 10 millionth is less personally valueable. Sure I can re-sell it (for some opportunity cost [overhead]), but unless the profit exceeds the overhead at all volumes, I will stop buying. Perhaps you could model this by having me participate at a variety of valuation levels: N bushels at M per barrel, N+x at M-y per barrel, etc. But this only works as a finite, discrete distribution; but you're using continuous math (witness the intersection of the curves: it exists because of the density properties of Q or R [depending on your curves] and the intermediate value theorem). I'm suspicious (by nature and) because Borel sets have taught us that finite situations do not always translate to the continuous case.

After reading your dimwitted comment, I visited your blog to see if you had written anything on the topic of money.

It appears you have:

http://lupoleboucher.livejournal.com/76418.html#cutid1

And after reading what you had written, it appears that you are one ignorant big dumb shit:

"America and most of the world in the 1930s was an example of not enough money in circulation. One of the reasons the fascists did so well economically, is they issued fiat money. Even the commies did OK, mostly by issuing fiat money, despite killing their most productive citizens. America had a longer Depression than most of the rest of the world in part because we didn't issue fiat money. FDR's big idea of directly stimulating the economy with deficit spending, without printing fiat money was a dumb idea that made things worse; it made for less money in circulation to fund capitalist projects, like paying factory workers."

"If you work in the field of quantitative finance, you know what I'm talking about. Every ding dong and their brother; people who don't know a volatility smile from a technicolor smile, has been writing about how derivatives are weapons of financial mass destruction, how we're about to fall into financial apocalypse because of these mysterious things. This despite the fact that, since they have come into wide usage, the economy has become far more stable and productive than it was in, say, the first half of the 20th century."

You don't need rationality for AC to work, this is just Chicago nonsense like saying you need rationality for markets to work. You also don't need altruism or any of the other things you mention.

All you need, simply, is for people to stop believing in what I like to call the "public policy fallacy": the idea that a government can make anything better, fix anything or help in anything. This is not just false, this is itself the cause of all the world's problems. Whenever something becomes the purview of public policy, it is ruined. Whether it is potatoes in the Soviet Union, sexuality in Saudi Arabia or banking in America, as soon as it becomes the purview of a coercive authority, it is utterly fucked.

So you don't need rationality, altruism, or superhuman potato-making, sexual, governance or banking abilities to have these things run well. All you need is to get people to stop trying to fix, improve or govern these things.

Greenspan did not cause this global crisis because he is evil, stupid or irrational. He caused it because he believed that being in a position of central banker can make things better. Most people think that way. So long a they do, they will continue to have economic disasters. As soon as they realize this and get rid of central banking, they won't.

lupoleboucher,

Your understanding of economics is pathetic. Please don't waste our time here with your nonsense and go to the Paul Krugman blog where you'll find plenty of people almost as dumb as you. If you'd like to actually realize why you're so clueless, go read Rothbard's What Has Government Done to Our Money. You can find it online and it's a quick read.

More importantly, spewing out baseless claims doesn't make you smart. It makes you a troll. At least Rothbard tried to argue for his case even if his ignorance of history and the fact of human irrationality doomed his case.

The pricing theory that needs rationality to work is the Neoclassical garbage variety. I assumed that your understanding of Econ is a step up from the Samuelson textbooks. It clearly isn't. You might wanna start with Hayek's The Use of Knowledge in Society.

And this is a blog comment thread, not a book, so it's a little silly to criticize me for not being thorough in stating my arguments.

So, read some Hayek, understan some Econ and then answer my point. Or go to the Krugman blog and jerk off to the wonders of neoclassical theory.

You are clearly not rational on the subjects of markets anymore so I doubt that this will help but here goes:

The pricing theory that needs rationality to work is the Neoclassical garbage variety.

Markets assume some preferences. Rationality states that those preferences are self consistent. I.e., if A is preferable to B and B is preferable to C then A is preferable to C. Without this, it is trivially obvious that market efficiency is not guaranteed. In fact, it is pretty easy to see that even a definition of market efficiency or what qualifies as a "working market" is gone. It is gone because the set of outcomes is no longer even weakly ordered by preference and therefore the words "more" and "less" lose their meaning in this context.

Also, saying something is garbage is not an argument. It is a distinct lack of an argument. You must provide a reason for why something is garbage.

I assumed that your understanding of Econ is a step up from the Samuelson textbooks. It clearly isn't.

Ad hominem again? Grow up.

You might wanna start with Hayek's The Use of Knowledge in Society.

The essay by Hayek while interesting (though a bit drawn out) deals with knowledge, not rationality.

And this is a blog comment thread, not a book, so it's a little silly to criticize me for not being thorough in stating my arguments.

You problem is not lack of thoroughness. It's not that you have a bad argument. It's that you don't have any argument. Is it too much to expect you to try to convince me instead of brow-beating me into your own personal preferences? I think not.

So, read some Hayek, understand some Econ and then answer my point. Or go to the Krugman blog and jerk off to the wonders of neoclassical theory.

Is it too much to ask for a little civility on these threads? Makes me wish for comment moderation. MM, you listening? we need more order. Please impose it for us.

It's not clear to me how exactly MM's position is supposed to differ from the anarcho-capitalist position. Ancaps think that all current government functions should be handled via private enterprise. MM thinks that the current government should be replaced by a joint stock corporation.

Look, I can't really counter a lifetime of maleducation in economics in a comments thread. You know nothing about economics--you are fully fluent in the weird cult of gibberish written by nerds that have hijacked economics in America in the 20th century. That you talk about efficiency of markets is exactly the problem.

From where I stand, you're an astrologist pontificating on astronomy asking me to prove astronomy is correct using a horoscope page as the base of my arguments. So, pick up a bunch of Austrian books, start with Hayek as he's the ideal entrance into sound econ from mainstream garbage; it worked for me. Thanks to Dr. Hayek's gentle introduction I have now fully recovered from all the mainstream stuff I've learned. You too can be cured!!

Blackadder:

The difference is that in Anarcho-capitalism, the individual chooses which services he wants to contract to whom. In MM's formalism, the contractor chooses what he wants to do to the people on his land.

For all of MM's bluster about his groundbreaking new ideology, all he's done really is go full-circle back to feudalism and serfdom.

For MM, democracy and mob-rule are the problem--effective government is the solution. For an AC, government is itself the problem, whether democratic, totalitarian, monarchist or minarchist--liberty is the solution.

I live in an apartment complex. If I want to contract out my living arrangements to a different firm I can do that, but I will have to move.

My understanding is that MM considers the government in his vision to be like a really large landlord (or, if we want to make the analogy more precise, a giant condo association). So if someone wants to contract services with a different provider they can do that, but it's going to entail moving to Canada (or Freedonia, or whatever). It's not clear to me how this is contrary to anarchocapitalist principles.

The basic problem with anarchocapitalism is that in order for markets to work their magic you need at least the possibility of competition. If the town's General Store starts charging $10 for a loaf of bread someone can open a Ralph's Pretty Good Grocery across the street and take their business. Most businesses would like to be able to prevent new competitors from entering the market, but they generally aren't able to do so, and if they try the men with the guns will come and stop them (at least ideally). If your business has the guns, however, then you aren't operating under any such restraints.

@Pals: I sometimes entertain myself by imagining that Greenspan, rather than being the pathetic Robert Stadler that he almost certainly is, is really Francisco d'Anconia, deliberately tearing down the system from the inside.

I strongly recommend everyone download and watch season two, episodes four and five (and presumably six, but I haven't seen that one yet) of the recent anime Spice and Wolf, which has a perfect example of anomalous anomalous demand (i.e. a non-monetary bubble). (In this case, silver is money and pyrite is the candidate Mb.) (It also has an amazing cute wolf goddess, but that's just a bonus.)

I live in an apartment complex. If I want to contract out my living ... It's not clear to me how this is contrary to anarchocapitalist principles.

The government isn't your landlord in a NC state. It is your owner and you are its slave. The only reason that you can move around is that it lets you. Similarly, the only reason that you are alive and (hopefully eating) is that it lets you. The whole idea of some entity having total control over people is obviously very much against AC. Your government is forced into profitability by its owners who are presumed to be rational and profit-motivated on average. Thus, theoretically, even if everybody lived under the same government, NC could still be effective though MM prefers that the world be broken into thousands of city-states to prevent single-point-of-failure kind of problems. Competition doesn't really play much of a part into the theory though in practice, I suspect that NC states will compete with each other for high-quality populations like the Indochinese and Ashkenazim Jews. Of course, if the government is scaled down to every individual, then NC and AC are equivalent. However, MM (and I) think that the model does not scale that well.

You have the right idea with the possibility of anti-trust. The problem with AC becomes pretty obvious when one applies the ILOO to it.

@Aaron

I wasn't particularly impressed by the economic reasoning in Spice and Wolf. Basically, they have a bubble and Amarty tries to profit off of it and LW makes him double down on his bet by shorting the pyrite (LW to AM that is). Pretty stupid idea from a risk-reward perspective for Amarty. This kind of betting almost never works well. The part with illiquid currency was a nice twist though. Trust the 1000 year old wolf goddess to have a few tricks up her sleeve.

P.S. And yes, Horo is adorable. I wish they still had the season 1 ed. I liked that one.

Spencer Heath has been the most notable proponent of landlordism or "vertically integrated proprietary communities", also known as "Georgism turned on its head". Peter Leeson critiques Ed Stringham's defense of that model here in favor of a more polycentric order.

MM once listed a series of names that supposedly taught him everything he knows. I don't believe Carlyle was in there, but Bruno Leoni was. It's odd that MM hasn't much discussed Leoni here. Arnold Kling just had a post wielding Leoni as a stick against Paul Romer, whose ideas resemble neocameralism and seasteading.

Finally, a blast from the past:"If by any chance you read this blog just for the articles, it's my duty to inform you that you are missing out on most of the fun. UR may not be the smartest blog on the net, but it certainly has the smartest commenters. This is probably just because it's new, and the yahoos haven't arrived yet. But it remains wondrous to me."Of course, back then he participated in the comments section. Whether it went downhill before or after he stopped is an open question.http://unqualified-reservations.blogspot.com/2007/06/some-objections-to-ultracalvinism.html

Ah, the post I was referring to name-dropping Leoni was his very first:"I am not Vizzini. I am just some dude who buys a lot of obscure used books, and is not afraid to grind them down, add flavor, and rebrand the result as a kind of political surimi. Most everything I have to say is available, with better writing, more detail and much more erudition, in Jouvenel, Kuehnelt-Leddihn, Leoni, Burnham, Nock, etc, etc."http://unqualified-reservations.blogspot.com/2007/04/formalist-manifesto-originally-posted.htmlHe gave a similar list at GNXP, but it included Rothbard and "Africa Addio". It's harder to search haloscan comments for that.

Ah, I just remembered I have some admin privileges for the site. It was here:http://haloscan.com/comments/raldanash/1372085725880958900/#1503972"Certainly, though I doubt he'd agree with it all. You also have to distinguish between early (Managerial Revolution) and late (Suicide of the West) Burnham - I prefer the later stuff. (I am currently awaiting my copy of The Machiavellians, which some people say is his best.

I think with Acton, Burnham, John T. Flynn, Jouvenel, Kuehnelt-Leddihn, Masters, Mises and Rothbard, you could patch together a pretty decent alternative history of the last 200 years. Maybe throw in some Carleton Putnam for spice, and cap it off with a class viewing of Africa Addio.

For people who are not used to reading older or non-mainstream prose, however, I always recommend Wolfgang Schivelbusch. Schivelbusch's credentials both literary and political are impeccable (he is said to be a conventional social democrat), and that makes books like Three New Deals far more effective than anyone at the Mises Institute could dream of. (Small wonder that, unlike his previous book, this one has gone almost entirely unreviewed.)"

@Kruger: the whole series (both seasons) is in general worth watching; the serious economics seems to be concentrated in chunks, interspersed with more character-driven episodes. In the first season, episodes two through six are about currency-debasement arbitrage, while eight through eleven are about general issues of business and trade. In season two, the pyrite-bubble plot is ongoing.

Of course, back then he participated in the comments section. Whether it went downhill before or after he stopped is an open question.

The comments section went downhill when UR shifted its attention from desriptive articles like analysis of social classes and our ruling class, to sci-fi proscriptive ones and autistic nerd-catnip economics posts.

TGGP: I have read Albion's Seed, but not in some years -- before I was exposed to Moldbuggery. So I'd like to reread it. What is his criticism of the "Turner thesis"? (I had to look it up -- fortunately, not obscure.)

MM wants the owners of USG to be compensated entirely in dividends rather than influence. ... The reason he wants that is that extracting money is more efficient.

Well, that is true. But I think the idea of coherent goals among the rulers is as important, if not more so. The question is this: if it is true that government is not stable in the long run, without having strong agreement on the ends of government, how can a diverse society get such agreement? MM's answer is: everyone can agree on money, so raise it to the end of government. This is a much more profound thing than it first appears. (I did not immediately understand it when I first saw it.) Money makes multiculturalism possible.

Now I have read What Does The Free Market Require? Yes, it is a good essay. Nothing really new there to me, but it is good to state clearly the evolutionary argument for the success of the market.

I disagree with you that we are not near the Laffer maximum. I think we are.

Newt: We are talking about oligarchs here, not competing firms operating in a system of laws which include anti-trust legislation (which admittedly has its own problems). I find it difficult to believe that there won't be a significant degree of collaboration between the agencies which leads to "artificially" high prices. You may have competition initially but one of the first things done will be to setup entry barriers.

We are talking about competing firms, at least if you are a standard AC. That they are oligarchical is just what happens to every organization -- look at modern business. Rule of an elite.

Of course there will be, and must be, collaboration between protection agencies. ACs expect that, and want it. How else can a criminal be extradicted? But as for this leading to high prices... well, yes, perhaps. But high prices are not a moral issue. Do you pay "too much" for Coke and Pepsi? What is a moral issue is unfreedom: if seemingly competing agencies make it effectively illegal to open a new agency, then you've degenerated to statism. And the fear of that result is, of course, the best criticism against AC.

I've thought about it a fair amount, and I think if AC just happened tomorrow, it probably would degenerate into statism. I am not one calling for much "change of heart"; I think any substantial one (especially if untrue, as Pals seems to want), is impossible. We are mere humans; we are not very smart. But I think there is a small meme-adjustment necessary for AC to work: and that is, that people would have to become really, really uncomfortable being unfree to choose a competitor. I think this would be a natural outcome to AC after it was running for a generation. But the obvious lack of such sentiment today is one reason why I argue that there is no easy path to AC.

Newt, one additional comment. I do not find the payment of dividends by sovcorps (or protection agencies) at all unbelievable. The reason that current companies don't do it any more is tax policy.

Dividends are profits, and as such they double taxed (as corp profits, then again as income to the individual owners). Also, dividends are "income", not "capital gains", and as such are taxed at a higher rate. So, from the individual investor's POV, dividends are inferior; he would prefer profits to be reinvested into (successful) growth, or used for stock buybacks. Because of that, most companies have lost the habit of paying dividends, nor do investors demand them any more.

However, 100 years ago, when income was not taxed, the standard way to share with profits was dividends.

This is an example of perverse incentives. Companies are encouraged to grow, regardless of whether or not they are good at it.

We are talking about competing firms ... That they are oligarchical is just what happens to every organization -- look at modern business. Rule of an elite.

Of course there will be, and must be, collaboration between protection agencies. ACs expect that, and want it. How else can a criminal be extradicted? But as for this leading to high prices... well, yes, perhaps. But high prices are not a moral issue. Do you pay "too much" for Coke and Pepsi? What is a moral issue is unfreedom: if seemingly competing agencies make it effectively illegal to open a new agency, then you've degenerated to statism. And the fear of that result is, of course, the best criticism against AC.

Ok, I don't get it. You are okay with oligarchical AC protection agencies but you want absolute freedom of entry. Do you have any idea what "oligarchy" is? The only way that the two views could be consistent is if you want symbolic freedom of entry. I.e., anybody can create a firm and call it a protection agency but will have few if any customers and will effectively be under the control of the mainline PAs if it actually wants to offer any protection.

Also, paying 40% of your income to a government is EVIL but paying 40% (or more) of your income to a PA is ok? Of course, with real freedom of entry, this will be a non-issue due to competition but note that real freedom of entry is incompatible with an oligarchy and due to the ILOO, oligarchy is what you will get.

Stated succinctly, oligarchy is not rule of an elite (that is aristocracy). Oligarchy is rule of a minority. Oligarchies generally start out as aristocracies but they rarely last like that for long (on a historical scale).

This is not so obvious with the "oligarchies" of current businesses because these businesses have to deal with an even bigger monopolist -- the US government which has made it amply clear that it is not interested in having economic oligarchies (though the political kind are just fine and dandy). The reason that the big few, Intel, IBM, AMD, etc... have not created associations which maintain current standards in complete secrecy and thereby effectively limit entry is because if they did, a judge will soon fine them into oblivion.

I've thought ... that there is no easy path to AC.

If men were angels, government would be unnecessary. Lets not go there.

... dividends ...

On this you are probably correct. Most of my knowledge of finance is over the last 30 years and dividends are indeed double taxed.

... Laffer maximum ...

Depends on which Laffer maximum you are talking about. If we are talking about the top 5%, then the US government is well beyond the Laffer Maximum as tax receipts are around 20% of total GDP and have stayed there regardless of the top tax rate. This (to me) seems to imply that there is significant tax evasion going on there.

If you are talking about corporate tax rates, the US is almost certainly well beyond the Laffer maximum as even the socialist European countries have lower tax rates.

If you are talking about capital gains, them I am not so sure but I suspect that we are still beyond the Laffer maximum as then the rate went from 20% to 15%, there was a significant increase in receipts in terms of total amount as well as percentage of GDP.

If you are talking about the bottom 50% of the country, then we are very much below the Laffer maximum as this part basically doesn't pay any income taxes.

I presume that somewhere in the middle, somebody is paying at the Laffer maximum but I am not sure which percentile.

@PA

I don't know... I rather liked the article on secession as well as the ones on Carlyle. This econ article was a bore though.

I don't think this word "oligarchy" means what you think it means. (For what I am thinking, see m-w.com: oligarchy.) Suffice to say that in my own mind, "government by the few", even if it is for "for corrupt and selfish purposes" says nothing about freedom of entry. Yes: "anyone" can create a new PA, and perhaps if he really is someone, get it off the ground. That, in a nutshell, is the definition of AC. I see no reason it has to be particularly easy, though.

Your notion that "real" freedom is entry is incompatible with oligarchy is just wrong. Or at least, it is for my kind of "real". Entry itself is a barrier, and always will be; thus, it filters out the many. Results in few. That is, oligarchy.

Perhaps it would help to analogize to authors of books. You might argue that writing a book is not really free, since only a few people are successful authors. I would agree with the latter clause, but not the former.

When I say "oligarchy," I assign to it the meaning that the person who came up with the Iron Law of Oligarchy, Michels, gave it and I assure you that his definition included entry barriers. Note further that even m-w uses "government by the few" (emphasis mine) as the first definition.

Your notion that "real" freedom is entry is incompatible with oligarchy is just wrong. Or at least, it is for my kind of "real". Entry itself is a barrier, and always will be; thus, it filters out the many. Results in few. That is, oligarchy.

That will never happen in real life. Assume a state with a few PAs. Then they have immense incentives to severely restrict entry. As there are only a few PAs and they are it, there is nothing to stop them. Thus, that is exactly what they will do. Any sense of duty or idealism they have will die a quick death once they see the possibility of continued power.

Perhaps it would help to analogize to authors of books. You might argue that writing a book is not really free, since only a few people are successful authors. I would agree with the latter clause, but not the former.

Please, I am not a neophyte and recognize the difference in kind between competitive entry barriers and artificial entry barriers. The analogous barrier for authors would not be the inherent difficulties of writing. It would be, for example, a licensing scheme, where a person is only allowed to publish if they have studied for X number of months at an accredited institution. I am sure you understand how this is very much a problem for maintaining effective competition in the publishing field. Now imagine similar barriers for entry into the PA field except here the entry barriers involve guns, tanks, and a firing squad.

When I say that entry will be restricted, I don't mean because protecting people is hard. People can work around that as governments demonstrate. Entry is restricted because any newcomers without serious insider contacts get shot, burnt, blown-up, imprisoned, or in some other way, neutralized so that they are no longer a threat to the existing bunch of oligarchical PAs.

Leo, I think you are missing Newt's point. Starting any new business is a challenge. But if I open a new coffee shop across from a Starbuck's I can be pretty sure that Starbuck's won't send goons over to ranksack the store, beat me up, and scare away my customers. By contrast, if I were to start selling dope on a street corner in someone else's "territory" I would be lucky to escape with just a beating.

What's the dif? Well, If Starbuck's ever tried to use force against me I could just call the cops and have there asses thrown in jail. You can't do that if you're a drug dealer. Nor can do you that if you're a protection dealer in a state of anarchy because in that case the only "cops" are your competitors, i.e., the guys pouring gasoline on your display case.

In short, you don't like my definition of oligarchy (m-w be damned), and want to use a private definition which is, more or less, "rule of a few who use force to prevent any other entrants". OK, you win -- by that definition of oligarchy, AC is not oligarchic, or at least, it is less oligarchic than current systems. Now you can unwind this discussion and see what I was saying.

As for what the barriers to entry in AC would be, you (and Mr. Blackadder) are fully alert to the danger of fascism. This is appropriate for moderns, with our state education installed talking points. And I will certainly grant you the possibility. Yes, PAs might collude, and if they do, evolve the state.

However, there is reason to think they won't be able to stop their customers organizing. Consider the modern state: it cannot (or will not, for moldbuggerers) stop the formation of various criminal gangs. And such gangs do form, especially among racial minorities who hate the state and society. Of course, they are not granted legitimacy; they do not evolve to full PAs. Why not? Could they in a freer system? And could not high-functioning majority types do the same?

Would you subscribe to a protection agency that disallowed you to leave it, if you had a choice? I would not. Indeed, there is a whole gamut of "nice state tricks" that work to reign in the abuses of states. None of these tricks depend on the state's monopoly of force to work. So I conclude that reigning in a PA would be doable.

...OK, you win -- by that definition of oligarchy, AC is not oligarchic, or at least, it is less oligarchic than current systems...

Not that easy. That is why the ILOO is so important for it demonstrates that all organization is oligarchy (with "oligarchy" defined as I do). AC is organization, therefore, AC is oligarchy. What do you mean by "less oligarchic"? Lower barriers to entry? I have yet to see any evidence in favor of that.

However, there is reason to think they won't be ... majority types do the same?

Two things about that. First off, your examples (criminal gangs) are universally a) poor (i.e., not worth robbing), and b) operating on the same side as the currently developing oligarchy, the cathedral. If any gangster started to accumulate significant capital, I assure you they won't stay gangsters long. Furthermore, I assure you that if any gangster went right-wing, they wouldn't stay out of jail wrong. The Left has great sympathy for criminals only when they are left-wing.

The next point on this is that those criminal gangs are exploitative and oligarchic within themselves to an extreme. Rare is a gang leader who does not take as he will. He may additionally have a lackey on a side. In large gangs, there will be some ruling council but they will once again, rule with an iron fist and live in comfort while the rest toil away. Do you really what that instead of a state?

Would you subscribe to a protection agency that disallowed you to leave it, if you had a choice? ...

Like there would be a choice. There are X number of PAs where X is some relatively small number. You either join one of them or get robbed, beaten, and stabbed. I expect that after some time, they will come up with mechanical rules for who gets covered by what PA. You may also be allowed to switch into another PA from that set of X. However, choosing outside would not be possible because they will be all that is there and they will restrict entry to keep it that way. Your conclusion that reining in PAs would be doable has no historical support and is divorced from reality. Note that all the tricks you mentioned themselves tend towards oligarchies.

@leonard: i read, about ten years ago, a libertarian sci-fi novel (in which furries played a large part, incidentally) set a couple generations after the "libertarian revolution", and one interesting thing the author did was have several characters express their belief in the sanctity of contract in "and that's how my parents raised me!" terms.

There ya go again with your private definition. Perhaps ILOO does claim to be about your "oligarchy". I have not read the book myself, so I rely only on wikipedia and a dictionary. But your definition -- control by an elite which uses force against competitors -- does not in fact apply to all organizations. Modern businesses are organization. So you simply cannot conclude that a PA being an org, it's an "oligarchy". (It is, of course, an oligarchy, but that's a different thing.)

As for gangs: yes, they are poor and criminal. Given that what they are doing is both actually illegal and viewed as illegitimate by the broader society, we expect both traits. They are not a surprise. Neither trait should be expected to hold in AC, insofar as organizing is legitimate, if not legal.

If organizing is illegal in AC, probably both will hold initially. They may not, though, in the longer run, if the gang manages to become legitimate.

As for gangs being part of the power structure... or tolerated by it... so what? They can be in AC, too, and much easier, since they will widely viewed as operating within their rights (legitimate), even if not legal.

There are X number of PAs where X is some relatively small number. You either join one of them or get robbed, beaten, and stabbed.

Or set up your own. (Oh yes, I forget that's impossible because of "oligarchy".)

Or just do without. If the general level of crime is low, you don't need much protection beyond what you can provide yourself. And even if you do, if you are generally believed to own a tort regardless of pre-affilitation with a PA, then there's no reason why you have to subscribe to one.

You are so stuck on your notion that PAs will be "oligarchies", and so locked into your private definition thereof, that you are unwilling even for a moment to entertain the thought that maybe they won't be. If you believe that by definition, they will forcibly repress competition, AC might possibly still happen, kinda sorta. But there's perfectly good reason to think they won't be "oligarchical". (Just oligarchical.)

Your conclusion that reining in PAs would be doable has no historical support and is divorced from reality.

Look, either you believe that we live in some sort of disguised dictatorship or something, or else you will admit that human beings have evolved some worthwhile tricks for taming the state. Not PAs: the state. You know, the USA. We have a Constitution, and while it clearly has not worked as expected, it does appear to have some braking effect on the slippery slope to socialism. Do you agree?

If you do agree -- if you think that any of the institutions I mentioned do actually succeed as "nice state" trick -- then you do have "historical support" for the idea of limited PAs. And it is you that is "divorced from reality". (Or just willfully failing to entertain my thought.)

If you don't agree, then I am curious how you explain the general tameness of the modern state. Why doesn't it just hang, draw, and quarter its enemies the way it used to? Have you any explanation whatsoever? Does this explanation really rely fundamentally on the state's legitimized monopoly of coercion?

Look, either you believe that we live in some sort of disguised dictatorship...

Yes.

[I]t [US constitution] does appear to have some braking effect on the slippery slope to socialism. Do you agree?

Not really. If you consider the trend of US policy since the early 1900s to now, it is clearly straight in the direction of more socialism. Whatever resistance there was was from the oligarchs of that time -- massive manufacturing conglomerates. If you want a description of what a political fight was like back then, I would highly advise reading The Jones & Laughlin Case by Richard C (a relative short and reachable book). Cortner. You might also want to familiarize yourself with the SCOTUS cases of the Lochner era and of the general time period. Consider for example, the case Schenck v. US (1919). In this case, the defendant, Schenck was the secretary of the US Socialist party. He distributed a document advocating resistance against conscription during WWI. He was summarily arrested, tried, and convicted in federal court under the Espionage act of 1917. His case got to the SC which ruled unanimously against Schenck. Can you even imagine the US govt. bringing forth such a case to trial today? I point is not whether Schenck was decided correctly or not. Rather, the point is to illustrate the massive change that has taken place in constitutional jurisprudence.

Whatever resistance that has been encountered is from the people of the old oligarchical group and a few of their spin-offs.

One who studies the cases of the past hundred years would irresistibly be drawn to the conclusion that the decisions made by the SC have at least as much to do with the Op-eds on the NYT as they have to do with the US constitution. The reversals of the past few years are an aberration that I assure you will be corrected as soon as the democrats get a few more SC appointments.

Your constitution is not worth the paper it is written on.

If you do agree...

No.

If you don't agree, then I am curious how you explain the general tameness of the modern state. Why doesn't it just hang, draw, and quarter its enemies the way it used to? Have you any explanation whatsoever? Does this explanation really rely fundamentally on the state's legitimized monopoly of coercion?

Um, that is exactly what it does. This becomes obvious when one recognizes that in reality, the US government is controlled more and more by the left-wing cathedral. If you want to consider the treatment that befalls its enemies relative to its friends, consider the treatment that the KKK would get today (and gets in historical studies) or how James von Brunn and Marcus Epstein have been treated. Contrast this with the treatment that the two thugs in full black-panther regalia received for intimidating voters right outside a polling place. Consider also the ferocity with which the right-wing regime of Hitler was dealt with (not that that was a bad idea). The reason that criminals are not simply shot is because criminals are not the true enemies of the cathedral. They vote overwhelmingly democratic and in general give liberals another reason to implement left-wing policies. In the rare cases where criminals, etc... do interfere with genuine elements of the cathedral, they are dealt with quickly. Note that the private police officers who protected Obama during his days as a community organizer did not care much for Miranda rights, etc... and were commended for it. In countries where this conversion to the left-wing socialistic oligarchy has proceeded even further, there are formal legal penalties leveled against enemies -- hate crime legislation. Note that among the cathedral circles, i.e., left-wing academics, you will find that there is high support for hate-speech legislation, first amendment be damned. Is the current state benign? not particularly.

Hmm, the Swiss have four mother-tongues, what they have in common is geography, not homogeneity

The swiss may have four mother tongue but they share a common cultural heritage. This is evidenced interestingly enough by their languages. Each one of these four languages has been made swiss to the point that they are effectively a new dialect in of themselves.

You write:"Thus if Ma is silver and Mb is gold, Ma/Mb skyrockets - since everyone is caching silver, and no one is caching gold. So, assuming that everyone is caching silver, everyone should cache silver."

If everyone is caching silver, then the 'skyrocketing' has already occured, so you can't profit from it by caching silver. So your discusion is totally illogical and has nothing to do with the real benefits of money standardization.

Also, historically gold and silver have co-existed as money, for the simple reason that they have different strengths. Gold is good for large transactions and silver is good for small transactions.

well, i wouldn't really call swiss french a dialect, or at least no more of one than british and american english are wrt each other. the variance is mostly in accent proper, plus a few minor vocabulary changes (like sane words for seventy, eighty, and ninety). and romansh isn't a dialect of anything, unless you count latin. you're certainly right about switzerdeutsch, though even that is mostly just part of the high- and highest-german continuum. i know nothing whatsoever about swiss italian, but standardization in italian is a very recent phenomenon, so it's probably the same story as with german.

i guess what i'm saying is that i doubt being part of switzerland has had much influence on the language drift of the swiss.